Aid Skeptic

Under Fire: The Enough Project

2009-04-11T16:25:00.004+01:00

Earlier this week the London School of Economics issued a report entitled “Trading Conflict for Development’ (http://www.crisisstates.com/Publications/tradingConflict.htm) which analysed the mineral trade in the Eastern Democratic Republic of Congo and how that trade supports the continuing insecurity in the region.

The London School of Economics, in its thorough and thoughtful analysis, came to the conclusion that the conflict in the Congo is a political issue. The involvement in the mineral trade by the various rebel groups is merely a symptom of the conflict, but not a driver of the conflict.

Additionally, LSE concluded that any boycott or ban of minerals from the Congo would not have any substantive impact on the conflict itself and would only further impoverish the million plus Congolese who are engaged in and supported by the artisanal mining sector.

The report, funded in part by the British Department for International Development, is at odds with the policy recommendations of the Enough Project. The Enough Project has just launched its cleverly titled (for Americans anyway) “Can You Hear Me Now?” campaign against what it described as “conflict” minerals in the Congo. (“Can You Hear Me Now?” is the catchphrase for Verizon, an American mobile phone operator.) Despite the trademark infringement the Enough Project’s campaign had other significant failings (see “Enough! Stupidity” below;) primarily that 99.8% of the global tin market is free of “conflict” tin, and any boycott or ban on minerals out of the Congo would further impoverish a large segment of the population.

Now, in a clarification of its campaign objectives, Enough has backtracked from its original goals of a complete boycott and now claims that the purpose of its campaign is to ensure electronics manufacturers are not sourcing raw materials from rebel groups in the Congo.

The Enough Project wants to pressure the big electronics manufacturers; Apple, Hewlett Packard, Nokia and Nintendo to exercise proper due diligence to ensure their raw materials are not sourced from conflict areas of the Congo.

The problem with the Enough Project, led by career activist John Prendergast, is that they have a fundamental misconception about the global marketplace, and economics in general.
For the big electronics manufacturers, the costs associated with ensuring that the 0.2% of conflict tin that exists in the global tin supply does not come from conflict areas of the Congo is prohibitive at best, if possible at all. By the time Apple or Hewlett Packard receive an electronic component for an item the tin has passed from mine site to trader, to exporter, to tin smelter, to trader, to London Metal Exchange warehouse, to tin solder manufacturer, to several component manufacturers and onto finished product.

The Enough Project would require these companies, in the middle of the greatest economic crisis in our lifetimes, to trace every quantity of tin back through numerous jurisdictions and companies and back to remote parts of sub-Saharan Africa.

Idealistic – yes. Realistic – no.

While Enough has now clearly stated that they don’t want a boycott on minerals from the Congo this is exactly what they are asking for. The end result of Enough’s campaign, if it could possibly be successful, is a de facto ban on minerals from the Congo. No multinational corporation is going to expend such resources on a due diligence program for such a small quantity of conflict tin in the supply chain – instead they will simply require their component suppliers to ensure the tin they are using is not from the Congo, regardless of its legality. This will result in no company willing to buy minerals from the Congo – thus creating the de facto boycott.

One has to wonder about the motives behind the Enough Project’s campaign. One would hope that as the “Can You Hear Me Now?” campaign was planned and formulated, this line of logic and reasoning was pursued. Perhaps John Prendergast and the Enough Project staff should put as much effort into doing something positive for Africa as they do on self – promotion. The livelihoods of millions of Africans depends on it.

Enough! Stupidity

2009-04-03T19:19:00.004+01:00

The Enough Project has recently announced its cleverly titled campaign “Can you hear me now?” against “conflict” minerals in the Democratic Republic of Congo. The Enough Project, founded by career activist John Prendergast and supported by the Washington based Center for American Progress is focused on ending genocide and crimes against humanity.

Its new campaign is focused on pressuring electronics manufacturers to ensure the materials in their products are not sourced from the Democratic Republic of Congo. The DRC exports a wide array of metals and minerals – copper, cobalt, tin, tantalite, wolframite and gold. The Enough Project is focused on those minerals exported from the eastern portion of the DRC – tin, tantalite and wolframite. Tin is used in solders for electronic components, tantalite in the manufacture of electronic capacitors, and wolframite is used to make tungsten, also widely used in the electronics industry.

Enough claims that the cause of the instability in Eastern Congo is these minerals themselves, and that various rebel groups use the minerals to fund their violence. According to Enough, the violence results in mass rapes and large numbers of deaths.

The claims of the Enough Project are at odds with the latest UN report on the financing of rebel groups in the Eastern Congo. In the report, the UN states that the majority of funding for the various rebel groups comes from sources in Rwanda, gold smuggling and illegal taxation. To a much lesser extent the rebels are engaged in tin, tantalite and wolframite mining. The majority of tin, tantalite and wolframite exporters in the Congo do so legally – and the trade supports a vast amount of the population. The real victims of the recent collapse in commodity prices have been the artisanal miners who independently mine the ores – while the work is dirty and hard, the pay far surpasses the alternative – unemployment.

The Enough Project’s campaign also demonstrates a basic misunderstanding of the global tin market. A quick Google search illuminates the scale of the issue – the global tin market is in excess of 360,000 metric tons per annum. The Congo exports about 14,000 metric tons of ore per year, but this figure is in ore – the actually quantity of tin in the ore is around 8000 metric tons. Assuming that 90% of the tin exported from the Congo is legal and legitimate – which it most certainly is – then 800 metric tons of ‘conflict’ ore actually enters the marketplace – an astounding 0.2% of the global tin market. Thus, there is a 99.8% chance that your iPhone, or any other electronic device you own doesn’t contain tin from ‘conflict’ areas of the Congo.

To further poke holes in Enough’s reasoning – Prendergast states in his paper that the rebels earn $85 million from the trade – this would equate to $105,000 per metric ton of tin they export – currently ten times the world tin price. A highly unlikely scenario.

Besides the factual inaccuracies of the Enough Project’s campaign and John Prendergast’s paper, the real damage they are doing is to the economic development of the Congo. By stigmatizing the mineral trade in the Congo the Enough Project, as well as a multitude of other NGOs, are potentially threatening real harm to the local populace, hundreds of thousands of people, who rely on artisanal mining to feed their families.

Worse, the Enough Project’s campaign threatens the potential for foreign direct investment – one of the key drivers to economic growth and development. As long as investment in the DRC and other parts of Africa is targeted by well-meaning but ultimately misguided NGOs and self-promoting activists (see "The Economics of Chaos" below,) then self sustaining growth will never take place. Africa’s poor and impoverished will continue to be harmed by the unintended consequences of those who think they are helping and continue to be reliant on handouts from the West.

Global Economic Crisis – Africa’s Opportunity

2009-04-02T23:42:00.002+01:00

The scale of the global economic crisis is unprecedented in our times – the G-20 today issued a statement committing member states to spending yet another trillion dollars to stem the problem. To date, the United States alone has commitments of over $13 trillion – the equivalent of one year’s GDP or enough money to have paid off every single outstanding mortgage in America. It seems every time one turns around the US Congress has another spending bill measuring in the hundreds of billions of dollars. China’s relatively modest $500 billion of economic spending seems almost modest by comparison.

Amongst all this the IMF, the World Bank and the NGO industry are crying out for help for the developing world. The World Bank claims it needs billions of dollars more in order to alleviate suffering and foster economic growth. Yet no one asks the question – why? In its 60 plus year experience the World Bank's policies, work and programs have yet to launch a single country into self-sustaining economic growth.

Could the global economic mayhem actually be beneficial to Africa and the rest of the aid dependent nations? The answer is it depends.

In a country that is creative and resourceful and committed to good governance and sound economic policy the sudden disappearance of aid money gives them a chance to develop the way the rest of the world has developed – on their own. Nations develop by competing in the global marketplace and creating environments that are business friendly, have sound judicial institutions and respect for the rule of law.

This process is not a complicated formula – it has been done time and time again, and yet it has been an elusive elixir lost on the well-meaning staff at the World Bank, the countless legions of NGO personnel who trek to Africa in order to help, and the suburban families who collect used clothing to send to Africa.

In order to understand the process of obtaining economic growth one has to envision Europe and the America two hundred years ago. In the early 19th century Europe and America looked politically and economically similar to present day Africa. Business and politics were intermingled, politicians were utterly and hopelessly corrupt and things didn’t get done at the front office but rather in back rooms with greased palms.

Only once the populace became fed up with the situation did things begin to change. Politicians were held accountable, corruption was curtailed (albeit never eliminated,) the institutions of the judiciary were strengthened and stifling bureaucracy and government interventionism, most often manifested in the form of government seizure of business, was eliminated. An entrepreneur in America can register a company in hours, in Africa it can take months.

If a more recent example is required look to the following places; China, Chile, Singapore, Thailand, Malaysia, or Slovenia. Neither China nor Chile received any significant amounts of aid – and Chile reformed an economy suffering from hyperinflation and an incredibly onerous business environment to achieve the highest economic growth rate in Latin America.

The opportunity is there for Africa to take – whether or not it does so is up to the leaders in question. If history is a guide they won’t because people, both inside and outside Africa, don’t demand it of them. Instead they will continue to beg, and bleeding hearts in the Western world will continue to fund their regimes, their cronyism, and their poor economic policies. Think about that the next time you donate to an NGO.

Dead Silence: The Aid Industry and Zimbabwe

2009-02-07T23:07:00.005Z

Amongst the catalogue of African economic basket cases one stands head and shoulders above the rest – Zimbabwe. Zimbabwe, is quite simply, a complete and utter disaster. Gross negligence and mismanagement on the part of Robert Mugabe’s regime has enriched a few, and impoverished the rest. Mugabe’s regime has taken a once prosperous and successful Zimbabwe, the onetime bread basket of Africa, and turned it into a case study for economic failure.

The numbers are staggering and unprecedented. Hyperinflation has reached levels once thought impossible – prices double every 32 hours – a 516 quintillion annualized percentage rate. The Zimbabwean Central Bank prints money as fast as it can obtain the banknote paper. Basic services are non-existent. Shelves are empty, goods can only be obtained on the black market. Cholera has broken out and killed thousands. People are starving. Zimbabwe has turned medieval.

And yet, within this mess, Mugabe still survives. Supported by an inner circle of advisors who have grown rich through currency controls and through various mineral deals with international companies.

If ever there was a poster child for the aid industry – one would think this would be it. Yet there is nothing. There is no outrage. There is no hand wringing or calls for international action. Yes, we should go Save Darfur, but don’t bother about Zimbabwe. Even the most vocal, upright and morally conscious aid organizations; Global Witness, the International Rescue Committee and Save the Children are dead silent.

The most Global Witness can muster was a press release in December calling for Zimbabwe to be excluded from the Kimberly Process. And yet, there are large publicly listed multinational corporations providing direct financial support to a corrupt and malicious regime in exchange for mining concessions. This would seem to be a giant red flag for Global Witness, who in the first sentence on their website state that they “investigate and campaign to prevent natural resource related conflict and corruption.”

Despite being actively involved in Somalia and Darfur, the International Rescue Committee only recently woke up to the issues in Zimbabwe when a reported 21,000 cases of cholera broke out. Despite thousands of people being infected with the disease the IRC managed to send exactly one doctor to Harare to help train local medical personnel.

Save the Children, which lists ten African countries it is involved in on its website, claims to have operated in Zimbabwe for over 25 years and states that they are feeding over 200,000 people with their 200 man strong team on the ground. Yet, this magnificent effort doesn’t rate listing Zimbabwe as one of the countries it is involved in in Africa.

The recently formed Enough Project claims to be building a permanent constituency to prevent genocide and crimes against humanity. Its focus is on Sudan, Chad, Congo, Uganda, and the horn of Africa – yet one of the gravest crisis’ in years has escaped its attention. Granted – the Enough Project doesn’t actually do anything – it is focused on raising funds to support its Washington, D.C. based lobbyists and a few insignificant staffers in the field whose sole purpose is to lend a modicum of credibility to the organization.

Why the silence? There are three possible reasons.

The first is that they don’t care. Zimbabwe is a problem for Zimbabwe. This attitude would be an abrupt turnabout for the various aid organizations who have spent their entire history claiming to care when others do not, and then raising funds to help find solutions to those problems. It is highly unlikely that the naïve and well meaning staffers at these organizations really don’t care about the people of Zimbabwe – so perhaps there is another reason for their silence.

The second possible reason is that the aid organizations do care and want to do something – but cannot. They are barred from Zimbabwe, harassed by the secret police and its just too dangerous to operate there. While plausible, this is probably unlikely. Aid organizations operate in Darfur, an equally dangerous location. And even if they can’t operate physically on the ground, they have provided no pithy sound bites to the international media on the situation, given no interviews and have not called on any international organizations to do something. Contrast this situation with the one in Darfur and one can see the disparities in effort. No one is selling Save Zimbabwe t-shirts on college campuses.

The third possible reason is that the aid organizations don’t see any benefit in calling for action on Zimbabwe. Once the layers of moral indignation and bushy-tailed naïveté are peeled back one realizes that the real purpose of aid organizations is to perpetuate themselves. As such, they are on a perennial fundraising mission.

Aid organizations must make cost/benefit decisions just like any other business. As such, any new endeavour requires a detailed analysis on the cost of that new project, versus the benefit – i.e.: how much money can be raised from donors?

There are two fundamental problems with the Zimbabwe crisis which preclude NGO involvement. The first is that the crisis has been burning slowly over the past decades. There has been no seminal event – no tsunami, no earthquake, no war which creates a dramatic beginning to the problem. Western donors, and aid organizations by correlation, like issues neatly packaged into Hollywood beginnings, middles and ends. Additionally, aid organizations need graphic images of suffering in order to encourage Western donors to reach for their wallets. There are no such images coming out of Zimbabwe. There are no dramatic scenes of horseback mounted Janjaweed raiding helpless villages.

The second problem precluding NGO involvement is that the crisis has been self-inflicted. Mugabe’s economic and political policies have driven farmers off of their lands, exacerbated crony capitalism, drained the treasury, driven legitimate business underground or abroad, and forced the entrepreneurial class to flee. Mugabe’s regime is a case study for bad policy. There is, however, a method to his madness – Mugabe’s policies have all been intentionally designed to support and enrich an inner circle of supporters to ensure the continuation of his rule. Mugabe’s supporters dine on steak and champagne and his wife takes lavish shopping trips to Hong Kong while the populace slowly starves and succumbs to cholera and other illnesses. Thus, its hard to paint Zimbabwe in any type of sympathetic light, even for a group of professional NGO spin masters who have honed their skills at exploiting Western guilt towards Africa.

Thus, the deafening silence on Zimbabwe can most likely be attributed to the last reason – its just not good business. Why sink funds into a “cause” that won’t net the aid organization any tangible return? Once one understands the “non-profit” aid organizations for what they are – businesses that exploit Western guilt, things start to become a little clearer.

The NY Times and Free Trade – Missing the Point

2009-01-29T19:23:00.001Z

In a January 26 article, Lydia Polgreen, the West African bureau chief for the New York Times, wrote about the increase in domestic rice farming in Senegal brought on by the recent price rise for that staple. Entrepreneurial farmers in that country are planting more rice in response the the changed market conditions in the hope of earning more money.

One would think that this would be a good news story. Not according to Lydia Polgreen. Polgreen paints a portrait of impending doom and disaster, repeatedly pointing out the risks involved should the price of rice fall beneath the cost of production. Polgreen presents the story as a human interest piece but misses the bigger picture.

There are two issues that escape Polgreen’s grasp. The first is the triumph of capitalism, and the second is the market distorting effects of US and EU subsidies for agricultural production.

Polgreen spends the majority of the article discussing the potential, and as yet unrealized, downsides to the increased production of this cash crop instead of lauding the entreprenurial spirit of the farmers who are pursuing higher profits. Certainly there are risks involved, as there are in any new venture - regardless of geography. The fact that Senegal has an economic system in which farmers are free to pursue the most efficient and profit maximizing crops should be a cause for celebration. History demonstrates that liberal economic policies are the best method for inducing growth in a country.

Additionally, there are time tested mechanisms for reducing ones exposure to price fluctuations in the commodity markets. Polgreen does not even address the issue of whether or not the Sengalese farmers have the ability to hedge their crops. Hedging is a simple mechanism where one sells their yet unrealized crop now for delivery in the future, effectively locking in the current price and ‘hedging’ the risk. Of course, if the price goes up, this limits the upside, but more importantly, it also limits the downside. Oxfam, the British charity who is quoted in the article as helping the rice farmers achieve their goals, should be organizing this mechanism if they haven’t already done so. We don’t know as Polgreen doesn’t address this most basic issue.

The second point that Polgreen misses is the market distorting effects of US and EU subsidies for agricultural production. The developed world spends over $250 billion a year on subsidies for domestic agricultural production. This artificially lowers the cost of domestic production which in turn lowers the global price for those commodities. This in turn often makes farming unprofitable in the developing world.

If the developed Western world was serious about promoting economic growth in the developing world it would suspend those subsidies and let market forces rule. This would shift production away from high cost production centres such as Europe and the US and towards low cost places such as Africa. In turn the economies of the developing world would see export oriented growth – a prerequisite for economic development.

This concept, however, takes much more effort to comprehend and isn’t nearly as emotionally charged as lamenting the potential downsides of entreprenurial risk.

The Economics of Chaos – Who really benefits from the conflict in the Eastern Congo?

2009-01-25T23:19:00.002Z

The bubble of instability in the eastern Congo burst this week with the arrest of the renegade General Laurent Nkunda by Rwandan authorities and the co-opting of his rebel group by the Congolese government. This would seem to be a cause for celebration by the UN and the various NGO’s who have done so much hand wringing over the issue.

Instead, many of the NGO’s as well as the UN have sought to minimize the significance of the events and instead keep the conflict alive in the media. But why, and at what cost?

Its no secret that the eastern Congo is minerally rich, as is the entirety of the Congo, and much of sub-Saharan Africa. Artisanal mining, codified in the Congolese Mining Code written with the help of the World Bank, provides employment and opportunity for hundreds of thousands of Congolese who would otherwise be living in much worse conditions. True, artisanal mining is dirty, hard work, but it provides employment and supports a large percentage of the population in the Congo. Studies have demonstrated that artisanal mining has provided much greater wealth to the region’s population than industrial mining did under the corrupt and ill-managed state owned mining companies.

Instead of focusing on the benefits of artisanal mining, a recent UN Report, as well as various NGO’s, most prominently Global Witness, have attempted to demonize the trade in its entirety. Certainly there are some fairly small, politically and militarily irrelevant rebel groups who are benefiting from the trade, as they also do from extortion and illegal taxation. But the evidence demonstrates that, by and large, the vast majority of the trade is not only legal, but highly beneficial to the economy of the region.

So who really benefits from the conflict?

The first is the United Nations. The UN mission in the Congo is the largest in the world with an annual budget of over a billion dollars. There are 17,000 peacekeeping troops in the Congo, and thousands more civilian support staff. Should peace, God forbid, actually break out the raison d'être for their mission would suddenly evaporate. Demonizing artisanal mining and the small, militarily insignificant rebel groups provides justification to the UN headquarters to continue its mission, and the fat expatriate salaries of thousands of Westerners.

The second group are the NGO’s themselves – many of which have made a name for themselves publicising the conflict in their media campaigns to raise funds for further research, development programs and refugee work. Should peace suddenly break out their jobs too are at risk. The most recent example of this is Global Witness, whose exaggerated statements on the economics of the mineral trade serve only to further their own cause and consequently, their funding. Carina Tertsakian, a researcher at Global Witness who studies the relationship between conflicts and natural resources stated in the South African Mail and Guardian that “At the moment it’s a free for all in the Congolese mining trade…You have different armed groups controlling mines throughout the region.”

This is not exactly how the UN Security Council report put it – but don’t let the facts get in the way of superficial sound bites.

The last group that benefits from the conflict are the legions of journalists who cover the issue for all of the Western media outlets. While in the larger sense, the conflict is actually quite small and localised, journalists are naturally incentivised to paint a much darker picture than reality would suggest. Journalists, while hiding under the banner of independence, are in fact pursuing their own agenda of self-interest. Reporters don’t get promoted for balanced reporting – they get promoted for selling newspapers.

In the end, these three groups while publicly decrying the conflict, privately benefit from it and in an even more sinister and hypocritical way, actively promote it as a means to further their own agendas. Sadly, the ones who lose out are the very ones they claim to be helping – the Congolese people.

NGO Paternalism and the Politics of Soft Racism

2009-01-05T10:22:00.002Z

On December 12th the United Nations Group of Experts on the Democratic Republic of Congo published its latest installment in a continuing series of reports on the financing of rebel groups in the eastern part of the country. Much like previous reports, it found that the myriad rebel groups obtain financing from a variety of sources to include taxation, protection rackets, renumeration from abroad and the trade in various minerals.

Three days later Global Witness issued a press release calling on governments to take “strong action” on the findings of the UN report, in particular the trade in minerals. The interesting thing about Global Witness’ statement is that they don’t call on the government of the Congo to do anything, but rather on the international community to do something about the problem.

This typifies not only Global Witness’ attitude towards Africa, but of the international aid community in general. The international aid groups absolve African governments and their leaders of the responsibility for good governance and instead adopt a paternalistic attitude towards them. Africa suffers from the legacy of colonialism, goes the argument. They are too poor to help themselves. The mantra of the NGO Jet Set is it’s the fault of the rich developed Western world.

The last sixty-three years of aid to Africa and the rest of the developing world has resulted in – well, not much. Building dams, roads, schools, clinics and donating clothes may seem like a good idea but in the long term it has had negligible, and possibly negative effects. The net result of all those donated clothes to Africa has resulted in a decimation of the textile industry in sub-saharan Africa, putting countless thousands out of work.

Certainly, the abrupt end of colonial rule caused much havoc in the developing world. But fifty years on one has to ask the question – when exactly will the international community start to hold African governments accountable for their actions? Only through good governance and good economic policy decisions will African countries be able to launch themselves into self-sustaining economic growth. This has been proved time and time again – Chile, Singapore, China, India, Thailand, and Malaysia to name a few. Kenya was the darling of the World Bank during the 1970’s when it achieved continuing and impressive economic growth rates under President Jomo Kenyatta. Only after he was succeeded by Daniel Arap Moi, who proved to be a corrupt and inefficient ruler, did things begin to go downhill. That, perhaps not coincidentally, coincided with a massive increase in aid to Kenya – which continues, despite its failure, to this day.

Global Witness and the rest of the NGO community indirectly support failed African leadership through their social programmes and activism. Their programes alleviate the host government of those responsibilities, and thus, accountability, to the people they are supposed to serve. Patrick Alley of Global Witness calls the mineral wealth of the DRC an “engine of conflict” – as if the mere presence of mineral wealth causes armed groups to greedily rise up. Global Witness ignores the fact that the richest province in Congo, Katanga, is not mired in insurgency, nor are other minerally rich areas of the world. The “engine of conflict” is not the mineral wealth of the region, but rather the failure of the Congolese government to address underlying issues of the long simmering conflict. The various rebel groups all have their own political goals, and use whatever methods they can to raise funds to achieve those goals – be it gold smuggling or (don’t tell anyone) taxation on NGO aid convoys.

Neither Global Witness nor the UN cite the direct failures of the Congolese government to deal with the conflict. The Congolese political maneuvers to deal with the rebel groups have been an unmitigated failure, and its army is ill-trained, ill-equipped, and unpaid; leaving little threat of force to back up any political resolution to the conflict. Why doesn’t Global Witness advocate for a more effective and professional Congolese army as a means to end the conflict?

The UN, and Global Witness ignore the fundamental political aspect of the conflict altogether and call for amorphous action by the international community. Only through political measures by those directly involved can the conflict be resolved. Apparently, governments in Africa cannot be held accountable for their actions, or lack thereof. One has to wonder if the apostles of the international aid community aren’t engaging in the politics of soft racism.

From Neo-Colonialism to NGO-Colonialism?

2008-10-17T19:13:00.001+01:00

Throughout Africa and the rest of the developing world thousands of Non-Governmental Organizations are engaged in assisting the impoverished, the downtrodden, and the unfortunate. While their specific objectives might vary, their broad goal is to simply “help.” Medicines San Frontiers provides medical care, Save the Children is focused on, well, saving children, and the International Rescue Committee is focused on refugee work. Hundreds more are building schools, assisting with agriculture, clean water, good governance, the environment, and the latest trend, gender issues.

Add to the list of these private organizations are a host of United Nations sponsored endeavors – the UN Development Program, the World Food Program, and the UN High Commissioner for Refugees. Governments are involved as well – US Agency for International Development (US AID) and the British Department for International Development (DFID.) The largest, and oldest player in the field is of course the World Bank and its various regional subsidiaries.

Over the past sixty-three years western governments alone have spent $1.2 trillion seeking economic growth in the developing world. Private NGO’s have contributed billions of dollars more.

So the question must be asked – has it done any good?

Certainly, at the individual human level refugees have been fed and housed, starvation averted, children vaccinated and rape victims counseled.

But at a macro level the answer is a resounding no. The net effect of the trillions of dollars and billions of man hours spent helping Africa and the rest of the developing world prosper has been negligible and possibly negative. The road to poverty appears to be paved with aid dollars.

No country in the developing world which has received any significant amount of aid has reformed its public policies, or launched itself into sustained economic growth. Taken as a group, it can be argued that a country’s economic development is inversely proportional to the amount of aid it receives.

How can this be? Legions of people have worked so hard to help, and yet it has been for naught?

The first reason is that foreign aid, whether in the form of World Bank financing or direct action through various NGOs on the ground, alleviates the host nation of responsibility for that function, whether it be a humanitarian crisis, vaccinating children, building schools, economic development or saving the endangered mountain gorilla or primeval forest. The presence of so many aid workers in a region thus removes the onus of good governance from the people in charge. It is no longer their problem – and thus they become less accountable to the people they are theoretically supposed to serve.

The second reason is that the presence of so many NGO’s and UN personnel coupled with their vast budgets creates distorting effects on the economy. The large influx of rich westerners with their fat expat salaries and hardship pay creates an artificial boom economy in the region leading to inflation throughout all sectors of the economy. Food prices rise, rents rise, consumer goods become more expensive. For the local small business owner recruiting and retaining qualified personnel becomes more expensive as the NGO’s pay scale doesn’t reflect the local reality.

While some would argue that the influx of cash is good for the economy – its in fact an artificial cash injection which creates a dependency of the host government on the NGO community – a form of NGO colonialism. The artificial economic boom thus relieves any pressure the host government would have had to reform regressive economic policies. Host governments no longer have to reform their stagnant state run economies or liberalize trade or create a competitive business environment; which are painful in the short run but key to long term economic growth. This in turn means governments don’t have to address other issues like endemic corruption or the mismanagement of public funds.

All of the economic reforms do come with a cost – a political cost. Reforming state owned companies means layoffs of redundant workers and the end of cronyism. Liberalizing trade means the end of corruption and protection of a few powerful businessmen. Indeed, good economic policy can be threatening to ones political career. If there are large amounts of artificial cash swimming around the country then the exigency to act disappears – and everyone is the worse off for it.

In the end, governments become dependent on the presence and actions of the NGO’s in order to maintain the status quo – the lack of political reform, poor public policy and poor economic choices. The NGO’s, for all their good intentions, become complicit in this; at best, shrouding the truth in a bright eyed and bushy-tailed naïveté, and at worse, proselytizing their moral superiority to the world.

But there is a much darker side to this as well. In order to operate and to perpetuate their activities NGO’s are dependent upon a continuing stream of donations. In countries in crisis or emerging from crisis, NGO’s have a financial incentive to exaggerate the need for aid – which in turn leads them to exaggerate the conditions in the areas in which they operate. The NGO community at large will overestimate deaths from starvation, numbers of refugees, or those killed by conflict. The best example is the work by the International Refugee Committee in its latest study of those killed by the conflict in the Democratic Republic of Congo’s volatile eastern region. On a recent survey, the IRC estimated 5.4 million people have been killed as a result of the conflict. This is a staggering figure – on par with the Holocaust. The IRC’s analysis is fundamentally flawed however in that they have concluded that virtually all deaths in the region are a result of the conflict – as opposed to simply living in impoverished conditions in sub-Saharan Africa. The IRC fails to demonstrate any credible correlation between these deaths and the conflict itself. Its as if one did an accounting of all deaths in the United States since 2001 and then claimed these were the direct result of the war on terror. Statistical integrity and small details are beside the point, however – the headline grabbing figure of 5.4 million deaths is much better for donations.

What the staffers at the IRC and other NGO’s don’t realize is that these distortions of the truth, while excellent fundraising mechanisms, are in fact detrimental to the cause they wish to serve. By making outlandish statements and barraging media outlets with horror stories, they are in fact hindering direct foreign investment into the region. Investment which would otherwise bring stability, economic growth, jobs and higher standards of living to those people.

All of this, is of course, lost on the legions of young, well meaning westerners running around the developing world trying to do their best to help humankind.

Mind the Gap: The World Bank and the Financing Gap theory of Development

2008-08-18T21:05:00.002+01:00

Since the establishment of the concept of aid for development after the Second World War, there have been roughly six failed methods that have been used to foster growth in the developing world. The first method was the financing gap theory which postulated that a recipient country needed project financing in order to develop.

Based on the Harrod-Domar economic model of 1946, the financing gap theory was used throughout the 1960s and 1970s as the method to calculate and deliver aid throughout Africa and Latin America. The main focus of this aid was the construction of large infrastructure projects.

The financing gap theory postulates that economic growth is proportional to investment. One could estimate the amount of growth one wants to achieve, and thus derive the amount of investment necessary in the country by comparing the difference between savings and investment. Since the target country for development was too poor to finance its own investment, and private capital flows to developing countries were at the time negligible, Western donors would step in to fill the gap.

This theory was lent further credence in 1960 by Walter Rostow in his influential work The Stages of Economic Growth. Rostow projected that increasing investment by five to ten percent of national income would launch a developing economy into “self-sustained growth.” The major drawback of Rostow’s projections are that they were heavily influenced by the apparent success of the Soviet Union’s attempts to industrialize at the time.

Using this theory the World Bank and others calculated the amount of aid necessary for a country’s economic growth and then financed large infrastructure projects in the developing world. Hydroelectric dams, new highways and industrial projects were funded across Africa and Latin America. The problem with this method is twofold.

First, the financing gap theory states that aid will encourage a government to increase its savings rate which will then be re-invested in the economy. This, however, has not been the case. The historical evidence demonstrates that the recipients of aid instead increase their government spending in light of the new found inflows of capital.

Secondly, aid for investment creates inverse incentives for growth. The greater the gap between savings and investment, the greater the financing gap and thus the greater amounts of foreign aid that will be received.

Despite the historical failure of the financing gap model, it is still in widespread use in many of the international financial institutions, namely the World Bank, to project the amounts of foreign aid necessary to create growth. A 2001 UN Report on development used the financing gap model to call for more aid for developing countries.

The World Bank is back at it again – only this time in Chad. In 2000 the World Bank financed the construction of a 1000 kilometer pipeline from landlocked Chad, across Cameroon to the Atlantic ocean. The idea was that the World Bank would finance the pipeline in exchange for an agreement with the Chadian government that 70% of of its revenue would be spent on poverty reduction.

In 2006, shortly after the pipeline became active, the government of Chad reneged on its agreement with the World Bank. Unusual for the World Bank, it froze the earmarked funds in what became a media sensation.

This being the World Bank, of course, it blinked first. Now Chad is only required to develop a new “poverty reduction strategy” in cooperation with the World Bank.

One has to wonder, what exactly is a “poverty reduction strategy?” Does it include the concept of “good governance and free and fair markets?” Nevermind – after the World Banks’ $4.1 billion investment, the World Bank now has over $300 million of additional projects in Chad.

Kenya Ports Work Slowdown: Government Meddling Hampers Free Trade

2008-08-12T09:30:00.000+01:00

The election violence in Kenya earlier this year garnered a great deal of media attention for its suddeness as well as its shocking violence captured on video and splashed across television screens around the world. Wasn’t Kenya that romantic place of safari holidays and beach resorts?

The Kenyan election problems were simply one more manifestation of an endemic disease – that of gross governmental mismanagement. This disease is currently manifesting itself at the port of Mombasa, albeit in a way that does not make for splashy headlines or graphic film clips.

The Kenyan Ports Authority, a government controlled agency which manages the port of Mombasa, is in a labor dispute with the Mombasa port workers. These port workers are the ones who dock the ships, load and unload the cargo and ensure the smooth functioning of international trade and commerce. The majority of East Africa’s goods transit through the port of Mombasa. Rwanda, Uganda and Kenya export coffee, tea, and other agricultural commodities, and import petrol and other goods they do not manufacture themselves. Sudan and Somalia are heavily dependent on World Food Program aid shipments that transit through Mombasa.

In July the KPA mandated a seven day work week for the dock workers - without commissurate pay increases. The dock workers have responded with a dramatic work slowdown resulting in containers piled up and ships delayed – costing hundreds of thousands if not millions of dollars per day.

What does this really mean? This means higher costs for anyone who consumes goods that transit through the port of Mombasa – ie: everyone in East Africa from Sudan, Somalia, Uganda, Rwanda and Congo. Those lower on the economic ladder will be hit hardest.

The actions by the KPA are one more example of Kenyan fiscal mismanagement. Over the past thirty years Kenya has been the recepient of over $15 billion in aid through international institutions – namely the World Bank. The conditions on that aid was that the Kenyan government would have to reform its economic policies and liberalise its economy. Key to this was the privatisation of many state-owned entities. Again and again, Kenya did not fulfill its end of the bargain. Instead of cutting off aid, the World Bank accepted the excuses and ploughed more aid into the country, enriching its rulers and fostering endemic corruption.

As if the economic losses from the election violence were not enough for the Kenyan government, now they are mismanaging their main economic lifeline – the port of Mombasa. If Kenya wishes to pull itself out of poverty as opposed to being supported by the welfare of the World Bank and aid agencies it must reform its economic and fiscal policies.

On Aid

2008-08-10T13:16:00.000+01:00

Over the past fifty years the Western world has spent over $1.2 trillion attempting to help Africa lift itself out of poverty and launch into what economists call self sustaining growth.

Despite these efforts, the vast majority of Africa is mired in poverty while the majority of its wealth is concentrated in the hands of a relatively few kleptocrats. Recent economic research into the effects of aid on development has demonstrated that aid is not the mechanism to spur growth. Conversely, those countries who have not received any significant amount of aid over the past 50 years have significantly outperformed those that did.

In the early 1970s Kenya and Chile had vastly different conditions – Kenya was the star of Africa, with economic growth rates at 7% a year for over ten years. Chile was a basket case with growth of only 1.7%, large budget deficits and soaring inflation.

Over the ensuing thirty years Kenya, through the assistance of the World Bank, received over $15 billion of aid for development, while Chile received none, but instead focused on reforming its economic policies.

The results have been staggering – Kenya’s economy has grown at an average of 0.44% per year since the 1970s, while Chile has grown at 6% per year over the same period.

So what happened? Good economic policy or lack thereof, is what happened. Kenya has consistently refused to reform its fiscal policies and liberalise its economy and continues to tolerate cronyism and corruption. The World Bank has continued to turn a blind eye to its failures as it injects more and more cash into the economy. Chile, on the other hand, now has one of the fastest growing economies in South America.